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Blue Shield backs down from a fight it seemed likely to win

March 17, 2011 |  5:30 am

Blue Shield logo Nonprofit health insurer Blue Shield of California declared Wednesday that two rate increases in rapid succession would suffice, so it was canceling the hike in premiums that were scheduled to take effect May 1. Its CEO, Bruce Bodaken, offered this explanation:

Our not-for-profit mission is to provide Californians with access to quality healthcare at an affordable price. As longtime advocates for universal healthcare coverage, we are also deeply committed to the success of health reform. The best way to fulfill our mission and make reform work is to keep costs down. By agreeing not to raise rates this year, we are helping to make coverage more affordable for our members during tough economic times. It's a financial risk for us, but a risk that's worth taking.

Remember, this comes from a company that insisted the third increase (which would have boosted premiums by as much as 18%) was not only justified but wasn't large enough to offset the tens of millions of dollars in losses the company expected to rack up on individual policies in 2011. Said Bodaken in February: "The only way to reduce premium increases is to limit the explosive growth in the cost of medical care."

State Insurance Commissioner Dave Jones had little power to stop the rate increase. As long as the company could project that 80% of its premium revenue would be spent on healthcare-related costs, it would have been good to go.

So what changed? It's hard to believe that Blue Cross' costs suddenly nosed down. The healthcare reform law Congress enacted last year includes a number of steps that could slow the growth in treatment costs, but those don't really kick in for a few years. It's conceivable that the rate increases Blue Shield put into effect in October and January drove off some of its costliest customers, but that's not a plausible explanation either.

Perhaps the company was worried that its back-to-back-to-back rate hikes were stoking lawmakers' support for a bill, AB 52 by Assemblyman Mike Feuer (D-Los Angeles), which would give the state insurance commissioner the same regulatory power over individual health insurance premiums that he has over car and home insurance. Not that Blue Shield's latest move mollified Feuer:

Families and businesses should not have to depend on the whim of an insurance company to halt a major rate increase.  Without a robust rate approval process in place, Californians will continue to experience these outrageous increases. I introduced Assembly Bill 52 because state officials need the power to reject rates that insurers can't justify.

By not increasing rates, Blue Shield won't have as many premium dollars to pump into the healthcare system. It will be interesting to see whether that means the company will try to persuade doctors and hospitals to accept lower fees -- which could shift some costs onto other insurers' customers -- or if it moves more aggressively to improve the coordination, efficiency and quality of care, as the 2010 healthcare reform law tries to do.

Bodaken appears to be taking the latter approach. "[H]ealth reform will succeed only if we restrain the rising cost and utilization of medical services that is driving premium increases," he said Wednesday in a prepared statement, expanding a bit on his remarks from last month. "We are dedicated to working collaboratively with providers and regulators to address that issue."

In the minds of some Republicans on Capitol Hill, simply reducing the supply of dollars for healthcare is the way to restrain the growth of medical costs. Think of it as attacking the problem from the supply side rather than the demand side. House Budget Committee Chairman Paul Ryan (R-Wis.), for example, has called for gradually slowing the increase in the federal government's spending on Medicare. Opponents, though, usually call this kind of approach "rationing."

-- Jon Healey

 

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